Among the other disclosures required by Form U4, reps are required to disclose information dating back ten years that pertains to bankruptcies, conflicts with creditors, and other financial issues. Disclosure is also required for the same issues when they relate to organizations, brokers, or dealers that were under the individual rep’s control when the financial issues or events occurred. Form U4 also requires disclosure of any unsatisfied judgments or liens against them.
FINRA Rule 1122 dictates that registrants must not file misleading information with FINRA, and FINRA’s bylaws dictate that all registration applications must be kept current and amended within 30 days of the date when the representative learns the information that necessitates the amendment.
When FINRA finds that a representative has failed to make a required financial disclosure or that the rep didn’t make the disclosure in a timely manner, FINRA opens an investigation to determine the nature of the violation and consequences. In the best-case scenario, FINRA issues a Letter of Caution. The next best-case involves FINRA issuing a Letter of Acceptance, Waiver, and Consent (AWC), which is typically accompanied by fines and sanctions. If FINRA’s investigation determines that the untimely disclosure or nondisclosure was “willful,” the representative receives a statutory disqualification (SD).
However, FINRA has not made clear how it determines the willfulness of such violations, nor has it indicated on what information it bases that determination on. Because the outcomes of such investigations vary significantly — from relatively low fines and minor sanctions to full SDs — it is essential to take a strategic and defensive approach to any FINRA investigation.
While many reps represent themselves in the course of a FINRA investigation, doing so is ill-advised. A rep’s best chance at achieving the outcome that is most favorable and least destructive is to hire an attorney versed in FINRA investigations to represent them. Doing so has the potential to save one’s career and livelihood in the face of a formidable threat.
Samantha DePrima, LL.M., J.D.
Director of Lien Expungement